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2011

Economic Dashboards

June 28, 2017


The information in this document does not constitute a recommendation to buy or sell securities or any investment recommendation. The contents
of this document have been prepared solely for the OCERS Board and is meant to provide general information only. The information contained
herein has been obtained from sources that we believe to be reliable, but its accuracy and completeness are not guaranteed. Any examples shown
in this document are purely hypothetical and have been included for demonstrational purposes only.

2017OCERS
Contents
1. Business Cycle Dashboards

2. Market Dashboards

3. Risk Factor Dashboards

4. Asset Class Dashboards

OCERSprovidescopiesofitsEconomicDashboardstootherpublicpensionplansasaprofessionalcourtesy
withoutrepresentationorwarranty. Thisinformationisnottobeconstruedasinvestmentadvice.Commercial
useofthismaterialisexpresslyprohibited. OCERSassumesnoliabilityfortheaccuracyoftheinformation
provided.

2017OCERS 2
Business Cycle Dashboards
Business Cycle: U.S. economy, growth slowed in Q1
1Q17
USRealGDP January2006toMarch2017 $16.8T
Weare
here.
Peak?

Dec2007
Peak
$15.0T
June2009
Trough
$14.4T

Source: Bloomberg/ Federal Reserve Bank of St. Louis, Real Gross Domestic Product (GDPC1)
Business Cycle: A recession is considered to have occurred after 2 consecutive quarters of negative GDP growth. A recovery is defined as the
period when the GDP level rebounds off the trough until it achieves the prior output peak. GDP growth beyond the prior output level is
considered an expansion. A full business cycle is considered a round trip from one peak to the next, or one trough to the next.
Trends: U.S. real GDP rose by 0.7% during the 1st quarter compared to 2.1% growth in the 4th quarter. This was the slowest quarterly expansion
in three years as weak auto sales and depressed utility costs dragged down consumer spending. Consumer spending, representing 70% of the
economy, only grew 0.3% in the 1st quarter, the slowest pace since 2009. Economic growth in the 2nd quarter will be dependent on wage gains
in order to help boost sentiment and offset the negative effects on consumer spending from higher inflation. Yearoveryear GDP growth came
in at 1.9% vs 2.0% in the 4Q 2016. Fed policy makers indicated at their May meeting that they are inclined to ignore transitory weakness in
the 1st quarter and continue normalizing interest rates at their June meeting.
Real GDP indicates that the current business cycle has lasted for 111 months and remains in the expansion stage. The prior peak occurred
during 4Q07, and the last trough occurred during 2Q09 after GDP output had fallen by nearly $640 billion. The U.S. recovery took 2 years and
officially ended when GDP surpassed $15 trillion during June 2011. From the last peak the economy has grown by 1.3% per year, but since the
trough it has expanded by 2.1% annually in real terms. The last 3 recoveries have lasted 92 months (19821990), 120 months (19912001), and
73 months (20012007).
Source: Bloomberg & National Bureau of Economic Research: www.nber.org/cycles/recessions.html
4 (1/15/2013)
2017OCERS
Leading and Coincident Indicators: Continued optimism
U.S. Conference Board Leading and Coincident Indicators
10 years, monthly as of April 30, 2017 LeadingEconomicIndex(LEI)
1. Avg.weeklyhours,manufacturing
2. Avg.weeklyinitialclaims,unemploymentinsurance
3. Manf.neworders:consumergoods,materials
4. ISMnewordersindex
5. Manf.neworders:nondefensecapitalgoodsex
aircraft
6. Buildingpermits,newprivatehousingunits
7. Stockprices,500commonstocks
8. LeadingCreditIndex
9. Interestratespread,10yearTreasuryvs.FedFunds
10. Avg.consumerexpectationsforbusinessconditions

CoincidentEconomicIndex(CEI)
1. Employeesonnonagriculturalpayrolls
2. Personalincomelesstransferpayments
3. IndustrialProduction
4. Manuf.andtradesales
Source: The Conference Board, www.conference-board.org (1/15/14)

Source: Bloomberg/ Conference Board


Leading and Coincident Economic index:
The Commerce Department produces indexes of economic growth, including a coincident index which measures the current state of the economy, a
leading indicators series which tends to presage GDP trends, and a lagging index which is a rearview mirror. Most people watch the leading indicators
for signals of what is to come. The coincident indicators tend to top out when a recession begins and bottom out when the recession ends, and the
leading indicators tend to precede those points by several months. A sharp decline in the leading indicators is almost always bad news for the stock
market; partly because stock prices themselves are part of the leading indicators index which makes its predictive power less valuable for investment
purposes.

Trends: The index of U.S. leading indicators rose 0.3% in April after increasing 0.3% in March. Yearoveryear it has gained 2.7%. 8 out of the 10
indicators were positive, with the indicators for building permits and stock prices detracting. The April results suggest that the economy should continue
to expand at a moderate pace. The coincident indicator (red line) rose 0.3 % in April (to 115.2 from 114.9). The leading indicator (blue line) rose to 126.9
in February from 126.5 in March.
Source: Bloomberg

2017OCERS 5
Consumer Confidence: Cooled further in May
Consumer Confidence
Monthly from January 1, 1985 to May 31, 2017
Exitingstallspeed:
irrationalbehaviors

30yearAverage

DoomandGloom

Source: Bloomberg / University of Michigan

Trends: Consumer confidence fell to 117.9 in May after reporting 119.4 (revised) in April. The consumer expectations for the next six months
also fell to 102.6 in May from 105.4 in April. Consumer sentiment cooled further in May from the 16year high we saw in March. Consumer
confidence remains in healthy territory despite the recent cooling of the sentiment. We will continue to closely monitor the direction of the
readings over the next few months.

When consumer confidence begins to rise above stall speed, consumers and investors typically begin to engage in irrational behavior, driving
up asset prices beyond reasonable valuation and purchasing beyond their means. We are not there yet, but we are getting closer.

Source: Bloomberg

2017OCERS 6
Fed Guideposts for Unemployment & Inflation
U.S. Unemployment Rate and Consumer Price Index (Urban Consumers)
10 years monthly to May 31, 2017

Inflation Target = 2.0%

Source: Bloomberg/ Federal Reserve, Bureau of Labor Statistics

Trends: The U.S. unemployment rate fell to 4.3% in May from 4.4% in April, while the labor force participation rate declined slightly and
wages failed to meet expectations (falling 0.8%). The labor market is showing some slowdown in hiring, but remains healthy overall,
supporting the recent interest rate increase by the Fed. The slowdown could be due to a labor shortage where employers find it harder to fill
vacancies, but if that is the case , we should expect faster wage growth. We will closely monitor the direction over the next few months.

Meanwhile, the consumerprice index (headline inflation) fell 0.1% in May after it rose 0.2% in April. The consumerprice index rose 1.9%
over the past 12 months after rising 2.2% in April, returning below the Feds 2% inflation target. Prices for energy, transportation, and
commodities contributed the most to the decline in CPI. The core measure rose 0.1% from the previous month and rose 1.7% yearover
year, down from 1.9% in April.

Source: Bloomberg & Federal Reserve


2017OCERS 7
Fed Forecasts vs. the Futures Market
TargetFederalFundsRate&30dayFederalFundsFuturesData
FeddotsasofMarch2017&June2017;FedfundsfuturesasofJune2017

TheGREENdots,knownasthe
Fedsdotplotrepresentsthe
Fedofficialsprojectionofwhere
thecentralbank'skeyinterest
ratewillbeattheendoftheyear
forthenextfewyears

Disparity

Source: The Federal Reserve & CME Group

Trends:Theupdatetothefedfundsfuturesmarketdata,theblackline(June)vs.thedashedgreyline(March),showsthatmarketparticipants
areexpectingaslowerpaceofanincreaseofthetargetfederalfundsratebytheFed.ThemedianFOMCforecastisindicating onemorerate
hikein2017withcurrentFedfundsraterangingbetween1%and1.25%,upfromthe0.75%to1%rangeestablishedinMarch.
Thefuturesmarketisstilltellingusthatbondtradersarenotpricinginanymajorratehikeanytimesoon.

NotethedisparitybetweenmarketexpectationsandtheviewsoftheFederal Reservegovernors.Marketexpectationsarestillless
optimisticthantheFed.
2017OCERS 8
Fed Funds Futures: No hike expected in July
ProbabilityforaRateHikeatJulyFOMCMeeting(%) USDollarIndex
4/3/17to6/16/2017 9/30/15to6/16/2017

0
4/3/2017 5/3/2017 6/3/2017

ProbabilityMatrixforUpcomingFOMCMeetings
asof6/16/2017

Fedfuturesarepricing
ina37.4%chanceof
gettinganotherrate
hikebytheendofthis
year.

Source: Bloomberg

2017OCERS 9
Inflation Expectations: Expectations falling off
5Year,5yearForwardInflationExpectations
Asof6/16/2017 Historically,marketinflationexpectationshaveremained
3.5 Thisindexisameasureofexpectedinflation(onaverage) relativelylevelat2.5%overalongperiodoftimeandcanbe
overthefiveyearperiodthatbeginsfiveyearsfromtoday viewedaslessfragilethanwhattheFederalReservehasmade
3 themouttobe.Since1995,coreinflationhasremained
mostlybelow2%.
2.5
During2016,theyearoveryearcoreinflationremained
moderatelyhigherintherangeof2.12.3%relativetoits1.6
2
Percent

2.1%rangeof2015.InDecember,thegapbetweenservice
andgoodspricetrendsnarrowedfurtheraspricesforenergy
1.5
increased.Thetrendcontinuedinto2017whereheadline
1 inflationsurpasstheFeds2%targetaswellasthecore
inflationmeasureearlierintheyear.However,itfellbelow
0.5 the2%targetonceagaininMay.
Oilshock
Therecentcoolinginflationpressure,aMarchpullbackand
0
weakerthanexpectedAprilandMayinflationnumbers,did
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
notkeeptheFedfromraisingtheinterestrateinJune.
Source: Federal Reserve Bank of St. Louis FRED Economic Data
InflationMeasures
Asof 5/31/2017

PPIFinishedGoods
PPIFinishedGoodsexFood&Energy

CPI
CPIexFood&Energy Linedepicts0%
CPIServiceIndustryexEnergyServices

Source: Bloomberg
2017OCERS 10
U.S. Job Growth and Wages
Estimated Monthly Aggregate Payroll, Nonfarm Total S.A. Average Weekly Hours, Private Workers S.A.
Nominal Dollars, 10/31/2008 to 5/31/2017 Nominal Dollars, 10/31/2008 to 5/31/2017

UNCHANGED

Source: Bloomberg/ Bureau of Labor Statistics Source: Bloomberg/ Bureau of Labor Statistics

Number of Workers, Nonfarm Total Payroll S.A. Total Private Hourly Wages, S.A.
8/31/2008 to 5/31/2017 8/31/2008 to 5/31/2017

Payrollgrowthis Recent12month
drivingGDPthrough wagegrowth=
theconsumer 2.0%

Source: Bloomberg/ Bureau of Labor Statistics

2017OCERS 11
Labor Market Monitor: Employment stable in May
UnemploymentRatebyEducationLevelAttained Trends: The U.S. unemployment rate has been steadily falling since
8/2009vs.5/2017 the financial crisis, from 10% to 4.3% as of May 2017. As seen on
5/31/2017 8/31/2009 the prior slide, hourly earnings have advanced 2.0% yearover
year, which should be supportive of a continued increase in
NationalRate 4.3% consumer spending.
9.6%
2.3% Overall labor market dynamics look quite healthy for the U.S.
Bachelorsdegreeorhigher 4.8% economy, and the recent retracement in the various employment
4.0% measures are at this point only indicating a slight cooling.
SomeCollege(associates) 8.1%
Temporary help employment has increased in the last couple of
HighSchooldegreeonly 4.7% months from the lows seen in June 2016 when it was down 1.9%
9.7%
yeartodate. It is worth noting that temporary employment
LessthanHighSchool 6.1% peaked prior to the last two recessions. We will continue to
15.6%
monitor this leading indicator.
0% 2% 4% 6% 8% 10% 12% 14% 16%
Source: Bloomberg/ Bureau of Labor Statistics

Temporary Help Services Nonfarm Payrolls


Wewillmonitorthis
Participation Rate leadingindicator
1/1/1990 to 5/31/2017
12/31/1990 to 5/31/2017

Pre-crisis average 66.5%

Thelaborparticipationmeasureremains
weakoverthelastyearandwellbelowthe
precrisisaverage

Source: Bloomberg/ Bureau of Labor Statistics


Source: Bloomberg
2017OCERS 12
Manufacturing Indices: Manufacturing activity rebound
Empire State Manufacturing Survey ISM Manufacturing Index
January 2008 to June 2017 January 2008 to May 2017

Areadingofmorethan50represents
expansionofthemanufacturingsector,
comparedtothepreviousmonth.Areading
under50representsacontraction,whilea
readingat50indicatesnochange.

Trend: The Empire State Manufacturing Index, the index for manufacturing in the New York region, rebounded to 19.8 in June. The results are
surprising given that there has not been any actions taken regarding the administrations trade, regulation, or tax policy. Regardless, it highlights a
robust U.S. manufacturing sentiment.

In the report, the indicator for prices paid (20.0), new orders (18.1), and shipments (22.3) contributed the most. The 6month forwardlooking
indicators for manufacturers in the region also rebounded in June and overall expectations remain in expansionary territory.

TheISMManufacturingIndexslightlyincreasedinMayto54.9from54.8inApril,andisremaininginexpansionaryterritory.Theresultsare
encouragingandshowsthatthereisstabilizationinU.S.manufacturing,butwiththedollarappreciatingontheprospectofinterestrateincreases
andglobalgrowthremainingslow,theupsidepotentialforexportsmaybelimited.

Source: Bloomberg
2017OCERS 13
Spare Capacity and Industrial Production
Capacity Utilization as % of Total and Industrial Production
Monthly from January 1995 to May 31, 2017

Weare
watching

Source: Bloomberg/ Federal Reserve

Trends: Capacityutilizationisthepercentageofavailableminingandmanufacturingcapacityusedatanypointintime.Becauseofobsolescence,80%
to85%isnormallyconsideredthefullthrottlelevel,beyondwhichcapacityshortagesbegintoinducepriceincreases.CapacityUtilizationtendsto
correlatestronglywithGDPandindustrialproduction,buthistoricallyhasbeenthequickerindextosignalturningpointsandisfollowedmoreclosely
asaleadingandconfirmingindicator.Whentheeconomyreachesitsprioroutputpeak,theexpansionisnolongerarecoveryandisthencalledan
expansionphaseinthebusinesscycle.Atthatpoint,growthratestendtomoderateasthereislessremainingidleslackincapacity.

U.S. industrial production was unchanged in May after increasing 1.1% in April. The underlying reading for manufacturing dropped 0.4%, after a 1.1%
increase in April. The capacity utilization fell slightly to 76.6% from 76.7% in April.

For now, we do not see capacity constraints impeding economic growth or requiring a hard foot on the brakes by the Fed.

2017OCERS 14
U.S. Housing Market: Is the home-buying season back?
Homesaleswerestrongthroughout2016andthepacehascontinuedwithexistinghomesalesreachinganothercyclepeakinMarchwhile
retracingslightlyinApril,butremainingabovethe15yearaverage.Thehomebuyingdemandtrendcontinuesdespitehigherpricesand
risingmortgagerates,andhousingcontinuestobeanimportantcontributortoU.S.economicgrowth.

30YFixedRateMortgage(%) (7/31/98 6/16/17) MortgageRefinanceActivity (7/13/12 6/16/17)

20yr avg

Itsnotthecostofmoney
holdingbackhousingdemand

NegativeEquityHomes(%) (9/30/09 3/31/17) HomeSalesExisting (10/31/2000 4/30/2017)

15yr avg

Much
healthier
Source: Bloomberg/ US Cenus Bureau

Source: Bloomberg/ Corelogic and US Census Bureau

2017OCERS 15
Global Shipping: Holding steady
Baltic Dry Index
Monthly from 9/30/2008 to 6/15/2017

Source: Bloomberg/ Freight Transportation Research and Baltic Dry Index

Baltic Dry Index: Transportation of goods is a good measure of underlying economic activity. In the global markets, the best single indicator
is the Baltic Dry (shipping) Index which tracks global freight rates for ships carrying drybulk commodities. The level of international trade
is highly correlated with these dayrates. A decline in the Baltic Dry Index usually signals a global slowdown, and a rising index correlates
with global growth.

The Baltic Dry Index appears to be stabilizing as oil and commodity prices rebound. The multiyear softening in shipping rates can be
attributed to a sluggish global economy and excess shipping capacity. Similar to commodity supercycles, the shipping industry is
vulnerable to booms and busts driven by overbuilding during economic expansion followed by lack of demand during contractions. In
response, shipping companies are increasing the rate at which old ships are turned into scrap and building more efficient fleets. Until
global trade improves, any rebound in rates will simply reflect oversold market pricing adjustments. Eventually we will find
opportunities for distressed investment plays in this industry, but that may not be prudent until the next recession. This could
become a future opportunistic investment sector.

2017OCERS
16
Bloomberg U.S. Economic Surprise Index
BloombergU.S.EconomicSurpriseIndex
asof6/20/2017

EconomicMomentumdidnot
improvein2015

EconomicMomentum
trendingupin2016&2017?

Source: Bloomberg

Trend: The Bloomberg Economic Surprise Index shows the degree to which economic analysts under or overestimate the trends in the business
cycle. The surprise element is defined as the percentage difference between analysts forecasts and the published value of a large number of
economic data releases of regularly reported weekly and monthly economic data releases (smoothed over a sixmonth period with more weight
given to recent releases). The forecasts are surveyed and displayed on the Bloomberg economic release calendar.

In 2015, economic momentum did not improve at all after the midyear market correction. However, economic momentum was more supportive
in 2016 and it rose persistently throughout the year giving reason to believe the economic cycle has more to run, even as the stock market has
been reaching new record highs. As can be seen above, economic momentum increased sharply post the election, but has since leveled off and
with economic releases coming in below estimates as of lately.

2017OCERS 17
Citi Economic Surprise Indices: Post elections effect wearing off?
CitiEconomicSurpriseIndex U.S. CitiEconomicSurpriseIndex EuroZone
asof6/20/2017 asof6/20/2017

CitiEconomicSurpriseIndex U.K. CitiEconomicSurpriseIndex EmergingMarkets


asof6/20/2017 asof6/20/2017

Source: Bloomberg
Trend: The Citi Economic Surprise Indices measure data surprises relative to market expectations. A positive reading means that the data releases
have been stronger than expected and a negative reading means that the data releases have been worse than expected.

2017OCERS 18
Market Dashboards
Global Index Valuations: U.S. Valuations in stretching territory
S&P 500 Index: Valuation Multiples Historical Average

Latest Trends:Highvaluationmetricsputshareprices
6/20/2017 Description * 5 yrs 10 yrs 15 yrs
atrisk.Whensharesaretradingathighpriceto
P/E Price to Earnings 21.7x 17.8 17.1 17.5 earningsratios,salesorprofitsneedtogrowto
P/B Price to Book 3.2 2.6 2.4 2.6 justifythemarketsexpectations.IntheU.S,
P/CF Price to Cash Flow 13.4 10.3 9.8 10.6 corporationsareoperatingathistoricallyhigh
P/S Price to Sales 2.1 1.7 1.5 1.5 profitmargins,andpricetosalesratiosare
Div. Yld Dividend Yield 2.0% 2.1 2.2 2.0 elevated.Ifcorporateearningdontgrowas
MSCI EAFE Index: Valuation Multiples Historical Average fastasthemarketanticipates,sharepricescan
decline.
Latest Comparedtohistoricallevels,theU.S.ratiosof
6/20/2017 Description * 5 yrs 10 yrs 15 yrs pricestosalesandcashflowareneartheir
P/E Price to Earnings 21.1x 18.7 19.8 24.5 highs.Thisistroublingtomanyanalysts,who
P/B Price to Book 1.7 1.6 1.6 1.7 believethatP/SandP/CFratiosgivethebest
P/CF Price to Cash Flow 9.1 8.9 8.5 8.9 measureofvaluation,becausetheyusetop
P/S Price to Sales 1.3 1.0 1.0 1.0 linesalesandcashearningsinsteadofbook
Div. Yld Dividend Yield 3.1% 3.3 3.4 3.1 valueandreportedprofitswhichcanbe
manipulatedbymanagementaccountants.
MSCI EME Index: Valuation Multiples Historical Average Emergingmarketsequityhavecaughtup
somewhatonarelativeP/Ebasis.
Latest
6/20/2017 Description * 5 yrs 10 yrs 15 yrs
P/E Price to Earnings 15.4x 13.2 13.6 13.5
P/B Price to Book 1.7 1.5 1.7 1.7
P/CF Price to Cash Flow 7.4 7.0 8.0 7.8
P/S Price to Sales 1.3 1.1 1.2 1.2
Div. Yld Dividend Yield 2.4% 2.8 2.7 2.6
2017OCERS 20
S&P 500 Forward P/E Ratio
S&P500ForwardP/Eratio
January1990toJune2017

Stretching?
Longterm
Average

Trend: The forward 12month P/E ratio for the S&P 500 is above the 5 and 10year historical averages seen on the prior page. However,
it is arguable that the markets still look cheap on a dividend yield basis also seen on the prior page. Additionally, the dividend yields look
relatively cheap compared to corporate bond yields, but this trend might be reversing due to the recent interest rate rally.

The forward 12month P/E ratio for the S&P 500 is computed as the current total market value divided by the sum of the 12 month
forward earnings per share (EPS). The driving force behind the higher P/E ratio is a combination of higher values driving the P and at
the same time there is a decline in the forward 12month EPS estimate for the S&P 500.
Source: Bloomberg

2017OCERS 21
U.S. Market Cap to GDP: Valuation Indicator
U.S.MarketCapToGDP:ValuationIndicator
1Q1971to1Q2017
160.0%

136.5%
140.0%
123.6% 127.7%
120.0%
104.9%
100.0%
80.9%
80.0%
Mean
73.4%
60.0% 72.6%
56.8%
40.0%

34.6%
20.0%

0.0%
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Bloomberg & Federal Reserve Bank of St. Louis

Trend: The total market valuation is measured by the ratio of total market capitalization (Wilshire Total Market) to U.S. GDP. The ratio is
broadly used to determine whether an overall market is over or undervalued relative to the broader economy.

Over the past four decades, the ratio has varied within a large range: the lowest point was below 35% in the 1982 recession and the highest
point reached above 136% during the tech bubble in 2000. Over the longrun, stock market valuations are expected to mean revert. The higher
current valuations therefore suggest the prospect of lower longterm returns in the future.

Note: To match the quarterly GDP, the daily Wilshire data is an average of the daily closes in a quarter rather than the quarterend closes
(slightly smoothing the volatility).
2017OCERS 22
China Monitors: Manufacturing contracts
Caixin ChinaPMI
June30,2014toJune16,2017 ? ChinaSatelliteManufacturingIndexVersusChinaOfficial
December31,2010toJune16,2017

Services
Watching
Official
this

Manufacturing
Satellite

Source: Bloomberg <MPMICNSA> and <MPMICNMA> Source: Bloomberg <SPCKCSMI> and <CPMINDX>

? OffshoreChineseRMBvsUSD
January6,2011toJune16,2017 Oneofthebiggestriskstotheglobaleconomyremainsasharp
Chinesecontraction.InMay,Caixin PMIManufacturingdipped
below50forthefirsttimein11monthsto49.6from50.3in
April.Satellitedataconfirmsthemovewiththemarketawaits
theofficialreadingfromtheChinesegovernment.TheChinese
Yuanstrengthenedpostelection,butremainswithinthelonger
termdevaluationtrend.

Source: Bloomberg <CNH>


2017OCERS
23
Crude Oil: Prices, Supply & Demand
Brent&WTIOilSpotPrices BakerHughesOil&GasRigCount
October2010toJune20,2017 August2014toJune16,2017

BrentCrudePrice

International
WTICrudePrice

U.S.

Source: Bloomberg <CO1 Comdty>, <CLX5> & <AMLP>


Trends:Mayaveragecrudeoilpriceswerelowerthanthe
WorldOilProduction&Consumption(millionbarrelsperday) AprilaveragesanddeclinedfurtherasofearlyJune,settlingat
$50.63perbarrelonJune1.OPECannouncedanextensionto
thevoluntaryproductioncutsthroughthefirstquarterof
2018attheirMay25meeting,asconcernsregardingthehigh
levelofgloballiquidityfuelsinventoriesrelativetothefive
yearaveragelevel.Brentcrudeoilpricesareforecastedto
average$53perbarrelin2017and$56perbarrelin2018.

Globaleconomicactivitycontinuestoremainrobustandis
supportingoilconsumptiongrowth.However,theoutlookfor
oilremainsuncertainasOPECssupplyplansremainshighly
uncertain.
*Forecasts
Eventually,supply/demanddynamicswillreturnto
equilibriumasthelowerpriceswillovertimecontributetoa
Source: U.S. Energy Information Administration Short-Term Energy Outlook, June 2017 pickupindemandand/oradeclineinthesupply.
2017OCERS
24
Mid-Stream Energy: MLPs track oil lower
Alerian MLPETF
April1,2015toJune16,2017

Alerian MLP

WTICrudePrice

Source: Bloomberg <CLA> & <AMLP>


Trends:SupplyconcernsweighonoilpricesasrecentU.S.inventorydatashowlargerthanexpectedbuildswhileotheroilproducing
countries,suchasAfrica,increaseoutput.Midstreamenergyhasfollowedoilpriceslower.Themarketwatchesasoiltests thelower
endofthetradingrangetoseewhetherpricescanhold.

However,politicalinitiativestowardalternativeenergyinthelongertermmaycurtailenergydemandandcouldimpairlongterm
pipelineassetvaluesforMLPs.Overall,oilisfacingbothoversupplyandlowerdemandscenarioswhichmayultimatelyleadtoalower
rangeforoilpricesforaprolongedperiod.OnthepositivesideforMLPs,thelowerenergypriceswillstimulatehigherdomestic
demandandthroughput,exceptforregionsthatbecomeuneconomicforproduction.

2017OCERS
25
Risk Factor Dashboards
Risk Expectations: Volatility remains low
CBOE S&P 500 Volatility Index (VIX) VIX Futures Curve
Daily as of June 16, 2017 As of June 16, 2017

18
17
16 17.15
16.775
15
15.42515.725
14 14.925
13 14.175
12 12.975
12.325
11
10 11.325
10.9
9
8
Spot 1M 2M 3M 4M 5M 6M 7M 8M 9M

Source: Bloomberg Charts, Chicago Board Options Exchange

Trend:Volatilityremainsatmultiyearlows,howevertheVIXfuturescurveshassteepenedperhapsanticipatinghighervolatilitytocome.

The VIX is a measure of risk (or unpredictability) of stock prices from day to day. The VIX Index is a key measure of market expectations of
nearterm volatility conveyed by the S&P 500 stock index option prices. The VIX futures curve has reverted back to its normal term structure
with a relatively low spot price.

Be fearful when others are greedy and greedy when others are fearful.
~ Warren Buffett
LowVolatility LowRisk!!!

2017OCERS 27
Equity Risk Monitor P/E valuations are stretched
ThePricetoEarningsratioisacommonvaluationmultipleusedtoassesswhetherastockisoverboughtoroversoldcomparedto
companyearnings.ThestockmarkethascontinuedtoreachnewhighspostthePresidentialelection.InformationTechnology,
Financials,ConsumerDiscretionary,andIndustrialsvaluationsareabovethe10yearaverage.

S&P500Financials Median10YP/E S&P500Industrials Median10YP/E


Asof 6/20/2017 Asof6/20/2017

Source: Bloomberg Source: Bloomberg

S&P500ConsumerDiscretionary Median10YP/E S&P500InformationTechnology Median10YP/E


Asof6/20/2017 Asof6/20/2017

Source: Bloomberg Source: Bloomberg

2017OCERS 28
Credit Monitor Spreads below average levels
EMD,HighYield,andInvestmentGradehavefullyrecoveredfromthedeclineearlyin2016and10yearTreasuryrateshavebeenontherisedespite
recentretrenchment.Lowratesandnarrowspreadsencouragepoorcapitaluseandlackofcreditdiscipline.Wideningspreadscouldbringsome
cautionintoafrothycreditmarket andashiftfromgreedtofear.

EmergingMarketSovereignOAS(bps) InvestmentGradeCorpBidOAS(bps)
asof6/20/2017 asof6/20/2017

Source: Bloomberg/ Bloomberg Indices

Source: Bloomberg/ Bloomberg Indices

HighYieldCorporateOAS(bps) 10YearTreasuryInterestRate(%)
asof6/19/2017 asof6/20/2017

Source: Bloomberg/ Bloomberg Indices

2017OCERS 29
European Banks: Banks spike higher after election
Stoxx 600BanksIndexvs5yearCorpCDS DeutscheBank ContingentConvertibleBonds
asof6/16/2017 asof6/16/2017

Stoxx 600Banks
Index

5yrCorpCDS

Source: Bloomberg <sxp7>

Stoxx 600BanksIndex Price/BookRatio Source: Bloomberg, DB 7.5% 12/29/49 CoCo (EK5892527)


asof6/16/2017
1.1
Trends:EuropeanbanksjumpedafterEmmanuel
1 MacronwontheFrenchelectioneasingconcernsover
0.9 aMarineLePenvictory.Creditriskreturnstolevels
notseensince2015.
0.8
0.7
0.6
0.5
6/18/2014
8/18/2014

2/18/2015
4/18/2015
6/18/2015
8/18/2015

2/18/2016
4/18/2016
6/18/2016
8/18/2016

2/18/2017
4/18/2017
10/18/2014
12/18/2014

10/18/2015
12/18/2015

10/18/2016
12/18/2016

Source: Bloomberg

2017OCERS 30
High Yield Market: Still strong
BoAML USNonFinancialHighYieldConstrainedIndex USHighYieldBondswithYieldtoWorstGreaterthan10%
11/30/2015to6/15/2017 AsofJune2017
420 25% 23%
400 22%
380 20% 19%
360
15%
340 15% 14% 14% 13%
12%
320 11%
10%
10% 9% 9% 9%
300 8%
7%
1/21/2016
2/15/2016
3/10/2016

4/30/2016
5/25/2016
6/20/2016
7/14/2016

9/27/2016

2/27/2017
3/23/2017
4/19/2017
5/12/2017
11/30/2015
12/24/2015

10/21/2016
11/16/2016
12/12/2016
4/6/2016

8/8/2016
9/1/2016

1/6/2017
2/1/2017

6/7/2017
5%

0%
Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
'16 '16 '16 '16 '16 '16 '16 '16 '16 '17 '17 '17 '17 '17 '17
BoAML USNonFinancialHY YieldtoWorst(%)
11/30/2015to6/15/2017
11 Trends:Thehighyieldbondmarkethasseenasteepdecline
whichwasintensifiedbyscarcityduetolessdealerinventory.
10 Yieldsgreaterthan10%areoftenseenasdistressed.Since
9 midFebruary2016,thehighyieldmarkethasrecoveredallof
itslossesandthensome.
8
7
6
5
1/15/2016

2/29/2016
3/22/2016
4/14/2016

5/27/2016
6/20/2016
7/12/2016

8/24/2016
9/15/2016
10/7/2016

1/30/2017
2/21/2017
3/15/2017

4/30/2017
5/22/2017
6/13/2017
11/30/2015
12/22/2015

2/5/2016

5/5/2016

8/2/2016

10/31/2016
11/22/2016
12/14/2016
1/6/2017

4/6/2017

Source: Bloomberg <HCNF> Inspiration: CQS

2017OCERS 31
Real Assets Equity

Private
Equity& FixedIncome

Asset Class Dashboards Credit

RealEstate Emerging
Markets
Periodic Chart of OCERS Indices and Total Plan
Annualized
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2007 - 2016
MSCI EM CPI+5% MSCI EM MSCI EM NCREIF ODCE MSCI EM Russell 3000 Cambridge PE NCREIF ODCE High Yield Cambridge PE
39.4% 5.1% 78.5% 18.9% 16.0% 18.2% 33.6% 17.9% 15.0% 17.5% 10.7%

Cambridge PE BC US Univl High Yield Cambridge PE Cambridge PE MSCI EAFE MSCI EAFE Russell 3000 Cambridge PE Russell 3000 High Yield
29.8% 2.4% 57.5% 18.4% 14.3% 17.3% 22.8% 12.6% 5.9% 12.7% 7.3%

JPM GBI-EM JPM GBI-EM MSCI EAFE Russell 3000 CPI+5% JPM GBI-EM Cambridge PE NCREIF ODCE CPI+5% BLOOM Cmdty Russell 3000
18.1% -5.2% 31.8% 16.9% 8.1% 16.8% 17.5% 12.5% 5.8% 11.8% 7.1%

BLOOM Cmdty Cambridge PE Russell 3000 BLOOM Cmdty BC US Univl Russell 3000 NCREIF ODCE CPI+5% Russell 3000 MSCI EM CPI+5%
16.2% -5.6% 28.3% 16.8% 7.4% 16.4% 13.9% 5.8% 0.5% 11.2% 6.9%

NCREIF ODCE NCREIF ODCE JPM GBI-EM NCREIF ODCE High Yield Cambridge PE OCERS BC US Univl BC US Univl JPM GBI-EM NCREIF ODCE
16.0% -10.0% 22.0% 16.4% 4.4% 16.1% 10.9% 5.6% 0.4% 9.9% 5.8%

MSCI EAFE OCERS BLOOM Cmdty JPM GBI-EM Russell 3000 High Yield HFRI FoF OCERS OCERS NCREIF ODCE OCERS
11.2% -21.0% 18.9% 15.7% 1.0% 15.6% 9.0% 4.7% -0.1% 8.8% 5.0%

OCERS HFRI FoF OCERS High Yield OCERS OCERS High Yield HFRI FoF HFRI FoF Cambridge PE BC US Univl
10.4% -21.4% 18.3% 15.2% 0.5% 12.0% 7.4% 3.4% -0.2% 8.7% 4.6%

HFRI FoF High Yield HFRI FoF OCERS JPM GBI-EM NCREIF ODCE CPI+5% High Yield MSCI EAFE OCERS JPM GBI-EM
10.3% -26.4% 11.5% 11.2% -1.8 10.9% 6.6% 2.5% -0.8% 8.5% 3.8%

CPI+5% BLOOM Cmdty BC US Univl MSCI EAFE HFRI FoF CPI+5% BC US Univl MSCI EM High Yield CPI+5% MSCI EM
9.1% -35.7% 8.6% 7.8% -5.7% 6.8% -1.4% -2.2% -4.6% 7.2% 1.8%

BC US Univl Russell 3000 CPI+5% BC US Univl MSCI EAFE BC US Univl MSCI EM MSCI EAFE JPM GBI-EM BC US Univl HFRI FoF
6.5% -37.3% 7.7% 7.2% -12.1% 5.5% -2.6% -4.9% -14.9% 3.9% 1.3%
Source:
Russellwww.my.statestreet.com
3000 MSCI EAFE Cambridge PE CPI+5% BLOOM Cmdty HFRI FoF JPM GBI-EM JPM GBI-EM MSCI EM MSCI EAFE MSCI EAFE
5.1% -43.4% -9.6% 6.6% -13.3% 4.8% -9.0% -5.7% -14.9% 1.0% 0.8%

High Yield MSCI EM NCREIF ODCE HFRI FoF MSCI EM BLOOM Cmdty BLOOM Cmdty BLOOM Cmdty BLOOM Cmdty HFRI FoF BLOOM Cmdty
2.2% -53.3% -29.8% 5.7% -18.4% -1.1% -9.5% -17.0% -24.7% 0.5% -5.6%

Trend: The periodic chart of asset classes illustrates the differing return patterns over the last 10 years from a few of the major OCERS indices
included in the policy benchmark. From year to year, the chart illustrates how one asset class may shift from being the top performing category to
the worst performer in the next. As evidenced from the OCERS Total Plan net of fees performance (white box), diversification ensures a more
consistent return pattern, less susceptible to wild swings from one year to the next.
2017OCERS 33
Disclaimer & Contact Information
OCERSprovidescopiesofitsEconomicDashboardstootherpublicpensionplansasaprofessionalcourtesy
withoutrepresentationorwarranty. Thisinformationisnottobeconstruedasinvestmentadvice.Although
thesedocumentsarepublicrecords,theyarenotapprovedforredistributionwithoutexpresspermissionfrom
OCERS,exceptfortheincidental andoccasionalfairuseofindividualpagesorchartsbypublicpensionplan
professionalsandtheirgoverningbodies. Commercialuseofthismaterialisexpresslyprohibited. OCERS
assumesnoliabilityfortheaccuracyoftheinformationprovided.

OrangeCountyEmployeesRetirementSystem
2223EastWellingtonAvenue,Suite100 Tel:(714)5586200
SantaAna,CA92701 www.ocers.org

Preparedby:
StinaWalanderSarkin Tel:(714)5694898
InvestmentAnalyst swalander@ocers.org

AdamCheng Tel:(714)5586225
InvestmentOfficer acheng@ocers.org

2017OCERS 34